Question 1

To strengthen the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously ____ Treasury securities.

Accepted Answer

A) buy; sell 
B) sell; buy 
C) buy; buy 
D) sell; sell 
A) buy; sell 
B) sell; buy 
C) buy; buy 
D) sell; sell

Question 2

Currency devaluations have the potential to reduce unemployment, while currency revaluations have the potential to reduce inflation.

Accepted Answer

A) True 
 B)False

Question 3

In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign competition.

Accepted Answer

A) True 
 B)False

Question 4

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

Accepted Answer

A) True 
 B)False

Question 5

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Accepted Answer

A) remain stable. 
B) strengthen. 
C) weaken. 
D) none of the above will have an impact on inflation. 
A) remain stable. 
B) strengthen. 
C) weaken. 
D) none of the above will have an impact on inflation.

Question 6

Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

Accepted Answer

A) True 
 B)False

Question 7

To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.

Accepted Answer

A) buy; sell 
B) sell; sell, 
C) sell; buy. 
D) buy; sell.. 
A) buy; sell 
B) sell; sell, 
C) sell; buy. 
D) buy; sell..

Question 8

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.

Accepted Answer

A) inward shift in demand for; outward shift in supply of 
B) inward shift in demand for; inward shift in supply of 
C) outward shift in supply of; outward shift in demand for 
D) outward shift in supply of; inward shift in demand for 
A) inward shift in demand for; outward shift in supply of 
B) inward shift in demand for; inward shift in supply of 
C) outward shift in supply of; outward shift in demand for 
D) outward shift in supply of; inward shift in demand for

Question 9

Which one of the following is a disadvantage of a fixed exchange rate system:

Accepted Answer

A) Importers are insulated from the risk that the currency will appreciate over time. 
B) Management of an MNC is less difficult. 
C) The government might change the value of the currency. 
D) Exporters are insulated from the risk that the currency will depreciate over time. 
A) Importers are insulated from the risk that the currency will appreciate over time. 
B) Management of an MNC is less difficult. 
C) The government might change the value of the currency. 
D) Exporters are insulated from the risk that the currency will depreciate over time.

Question 10

Which of the following is not true regarding government intervention?

Accepted Answer

A) Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B) Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C) Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D) Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E) All of the above are true. 
A) Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B) Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C) Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D) Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E) All of the above are true.

Question 11

The establishment of the euro allows for more consistent economic conditions across countries but eliminates the power of any individual European country to solve local economic problems with its own unique monetary policy.

Accepted Answer

A) True 
 B)False

Question 12

Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should ____, and A's imports from C should ____.

Accepted Answer

A) decrease; increase 
B) decrease; decrease 
C) increase; decrease 
D) increase; increase 
A) decrease; increase 
B) decrease; decrease 
C) increase; decrease 
D) increase; increase

Question 13

It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?

Accepted Answer

A) Sell dollars for foreign currency 
B) Buy dollars with foreign currency 
C) Lower interest rates 
D) None of the above 
A) Sell dollars for foreign currency 
B) Buy dollars with foreign currency 
C) Lower interest rates 
D) None of the above

Question 14

Direct intervention is usually more effective than indirect intervention.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the dollar has been consistently appreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using nonsterilized intervention. The Fed would

Accepted Answer

A) buy dollars with foreign currency and simultaneously sell Treasury securities for dollars. 
B) buy dollars with foreign currency and simultaneously buy Treasury securities with dollars. 
C) sell dollars for foreign currency and simultaneously sell Treasury securities for dollars. 
D) sell dollars for foreign currency and simultaneously buy Treasury securities with dollars. 
E) none of the above 
A) buy dollars with foreign currency and simultaneously sell Treasury securities for dollars. 
B) buy dollars with foreign currency and simultaneously buy Treasury securities with dollars. 
C) sell dollars for foreign currency and simultaneously sell Treasury securities for dollars. 
D) sell dollars for foreign currency and simultaneously buy Treasury securities with dollars. 
E) none of the above

Question 16

A strong home currency can harm exports; exporters typically benefit from a weaker home country currency.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is true regarding the euro?

Accepted Answer

A) Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders. 
B) It allows for more consistent economic conditions across countries. 
C) It prevents each country from conducting its own monetary policy. 
D) All of the above are true. 
A) Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders. 
B) It allows for more consistent economic conditions across countries. 
C) It prevents each country from conducting its own monetary policy. 
D) All of the above are true.

Question 18

China's yuan is presently:

Accepted Answer

A) allowed to fluctuate freely without any central bank intervention. 
B) allowed to fluctuate but with central bank intervention. 
C) pegged to the dollar. 
D) pegged to the euro. 
A) allowed to fluctuate freely without any central bank intervention. 
B) allowed to fluctuate but with central bank intervention. 
C) pegged to the dollar. 
D) pegged to the euro.

Question 19

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following are examples of currency controls?

Accepted Answer

A) import restrictions. 
B) prohibition of remittance of funds. 
C) ceilings on granting credit to foreign firms. 
D) all of the above 
A) import restrictions. 
B) prohibition of remittance of funds. 
C) ceilings on granting credit to foreign firms. 
D) all of the above

To strengthen the dollar using sterilized intervention, the Fed would dollars and simultaneously Treasury securities.

Currency devaluations have the potential to reduce unemployment, while currency revaluations have the potential to reduce inflation.

In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign competition.

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

To weaken the dollar using sterilized intervention, the Fed will U.S. dollars and simultaneously Treasury securities.

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an U.S. dollars and an euros.

Which one of the following is a disadvantage of a fixed exchange rate system:

Which of the following is not true regarding government intervention?

The establishment of the euro allows for more consistent economic conditions across countries but eliminates the power of any individual European country to solve local economic problems with its own unique monetary policy.

It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?

Direct intervention is usually more effective than indirect intervention.

Assume that the dollar has been consistently appreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using nonsterilized intervention. The Fed would

A strong home currency can harm exports; exporters typically benefit from a weaker home country currency.

Which of the following is true regarding the euro?

China's yuan is presently:

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

Which of the following are examples of currency controls?

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 6: Government Influence on Exchange Rates

To strengthen the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously ____ Treasury securities.

Currency devaluations have the potential to reduce unemployment, while currency revaluations have the potential to reduce inflation.

In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign competition.

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.

Which one of the following is a disadvantage of a fixed exchange rate system:

Which of the following is not true regarding government intervention?

The establishment of the euro allows for more consistent economic conditions across countries but eliminates the power of any individual European country to solve local economic problems with its own unique monetary policy.

It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?

Direct intervention is usually more effective than indirect intervention.

Assume that the dollar has been consistently appreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using nonsterilized intervention. The Fed would

A strong home currency can harm exports; exporters typically benefit from a weaker home country currency.

Which of the following is true regarding the euro?

China's yuan is presently:

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

Which of the following are examples of currency controls?

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

To strengthen the dollar using sterilized intervention, the Fed would dollars and simultaneously Treasury securities.

To weaken the dollar using sterilized intervention, the Fed will U.S. dollars and simultaneously Treasury securities.

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an U.S. dollars and an euros.